Shinsei Bank Forms Sovereign Bond Fund With Russell Investments

By Shigeru Sato and Shingo Kawamoto -
Jan 21, 2013

Shinsei Bank Ltd. (8303), the Japanese
lender partly owned by J. Christopher Flowers, tied up with
Russell Investments Ltd. to form a sovereign-bond fund aimed at
regional banks cutting reliance on Japan government debt.

Russell, the asset manager and creator of global indexes
bearing its name, and Tokyo-based Shinsei started the private
fund earlier this month with 4 billion yen ($45 million) in
assets, Akira Oishi, general manager of Shinsei’s asset
management products division, said in an interview yesterday.

Shinsei is expanding asset management services for Japan’s
105 regional banks as they pare holdings of the nation’s bonds
and seek higher returns from less-indebted nations. The fund
will invest in five-year notes of countries with a debt-to-gross
domestic product ratio below 80 percent, such as Australia and
South Africa, Oishi said.

“Japanese banks are massive holders of JGBs, and a 1
percentage-point rise in benchmark yields could give a blow to
their earnings,” said Tsuyoshi Ueno, a Tokyo-based senior
economist at NLI Research Institute. “Regional banks need more
risk management.”

Regional banks held a combined 43 trillion yen of Japanese
government bonds as of Nov. 30, according to central bank data.
The country’s benchmark 10-year note yielded 0.735 percent at 11
a.m. in Tokyo.

Japan’s debt load is more than twice the size of its GDP.
Its bonds returned 1.8 percent last year, compared with 5.5
percent for Australian government debt, according to Bank of
America Merrill Lynch data.

The Shinsei Russell Intelligent Government Bond Fund also
holds debt from Mexico, Brazil, Chile, Poland and the
Netherlands, according to Oishi, who aims to expand the fund to
10 billion yen in assets.

Russell, which manages about $159 billion in assets, will
manage the fund.